This section outlines a number of activities and tools necessary to manage and improve suppliers’ performance.
You must be careful not to substantially modify the contract when considering some of the following.
Benchmarking costs against the suppliers’ competitors is a recognised method of avoiding cost ‘creep’ and ensuring best value.
Benchmarking should be undertaken throughout the life of the contract. It can be used for:
This 80 percent will normally be no more than 20 percent of the number of line items.. You now have a manageable amount of data to go out into the market place with.
This does not cover every aspect of the potential scope of supply. In certain circumstances additional items may need to be added, such as bottle-neck and specialised items. The aim is to gain an estimation of the market rates.
The incumbent supplier should be made aware that you are planning to perform a benchmarking exercise before you go out to the market place.
Benchmarking is generally an informal process and the Management Information Hub is a good source of information, as is the internet. You can also contact a number of suppliers directly. However it is important to ensure these recipients of requests understand this is a benchmarking exercise and not a business opportunity. The request should be simple enough for the suppliers to provide the information without having to spend a great deal of time doing so.
If you are not comfortable with where the incumbent supplier’s pricing fits, invite them to a meeting. Give them the opportunity to explain why they are not competitive against the current market rates. On no account should you divulge the competitors names or pricing information.
If the supplier is willing to accept their prices are not in line with the market rate, this will be a relatively pain free cost reduction for you. If the supplier is unwilling to negotiate a reduction, you should initiate the escalation process. Include this as an agenda item at the next Review Meeting.
The fundamental purpose of Contract and Supplier Management is to ensure that:
Anyone engaged in managing suppliers must read and fully understand the contract terms and conditions. This will ensure they are not at a disadvantage should any issues arise.
It is essential that your Organisation’s Contract Manager/Contract Management Officer is engaged from the Develop Strategy stage early in the process and participates in the development of the terms & conditions.
The Full Balanced Scorecard is recognised for monitoring and managing contract and supplier performance.
KPIs provide a mechanism to measure the four quadrants of the balanced scorecard (Quality, Cost, Sustainability, and Service). KPIs help organisations understand how well they and/or their suppliers are performing against their strategic goals and objectives.
For Care & Support Services please also read the Additional KPI Guidance for Care and Support Services.
Contract management arrangements should identify what happens when the contract is not being delivered as agreed or, the agreed quality standards are not being met.
Blacklisting refers to the practice of systematically denying individuals employment who would otherwise be able to be employed. This can be on the basis of information, accurate or not, held in some type of database.
The Scottish Government regards blacklisting or the compiling of a blacklist as unacceptable.
Effective contract management monitoring ensures the practice of blacklisting does not occur in public contracts.
The Employment Relations Act 1999 (Blacklists) Regulations 2010 provide rights for individuals if blacklisting results in refusal of employment, detriment, dismissal or redundancy.
Any bidder which has been found to have breached, or has admitted breaching, these Regulations must be excluded from the procurement process for a period of three years. This is unless it can demonstrate to you that it has taken appropriate remedial steps. The Scottish Government regards blacklisting or the compiling of a blacklist as totally unacceptable. Blacklisting refers to the practice of systematically denying individuals employment, who would otherwise be able to be employed, on the basis of information, accurate or not, held in some type of database.
MI is used to monitor the supplier or contract performance. It ensures management have the information necessary to make effective strategic and operational decisions.
It is important that your MI requirements are clearly defined and communicated to the supplier. Reporting arrangements must be fair and proportionate and not duplicate information already provided.
Your MI approach to should minimise demands on suppliers for information about goods/service delivery. The frequency and level of reporting should be informed by a risk assessment. Reporting may increase in certain circumstances, for example if a complaint is made about service/delivery.
For some specific services you should avoid duplicating information which is collected by and is available from regulatory bodies. This can be achieved through the development of Memoranda of Understanding and regular discussions between the organisation and the regulatory bodies.
Contract Managers/Contract Management Officers should present information gained through contract management in regular reports to senior managers. In order to fulfil their role, they should:
Further examples can be found in the Management Information document.
Sustainability outcomes, for example Fair Work Practices, must be an integral element of the contract and supplier management process. They should be included as a standard agenda item at supplier review meetings and considered alongside all other contract management matters.
It is important to ensure monitoring includes the use of any agency or sub-contractor workers throughout the duration of the contract. This will include any new members joining the workforce engaged on the contract delivery.
Evidence should be sought from suppliers to demonstrate compliance with agreed contract conditions, for example, reviewing recruitment information: pay policy; workers terms and conditions involved in contract delivery. This includes what the main contractor is doing to ensure commitments are being maintained by agency workers and down the sub-contractor supply chain.
Where there are material concerns regarding a supplier’s compliance with any sustainability commitments or the contractual obligations it has made, an organisation could consider whether to undertake general sustainability audit of the contract.
Contract management arrangements should identify what happens when the contract is not being delivered as agreed or, the agreed quality standards are not being met.
Incentives and sanctions should be used appropriately to maintain/improve the contract/supplier performance.
There are specific contract terms and conditions that can be used to help drive contract compliance/performance. These should be incorporated into the contract terms and conditions (T&Cs).
You should ensure that you understand the specific contract T&Cs. Any incentives and sanctions must be appropriate and legally enforceable. You should seek legal advice if in doubt as to the wording, appropriateness or legality of a proposed condition.
Examples of incentives and sanctions which could be considered are listed below. These must not be applied autonomously. Appropriate internal approval must be sought and received prior to implementation.
Incentives could (subject to avoiding substantial modification) include:
For a sanction to be effectively enforced, sufficient evidence is required to justify the claim or action. It is therefore important to have clear records. for example of agreed service levels, notice periods, reminders, communications, agreements etc.
Any enforced incentive or sanction must comply with the agreed contract or agreement terms and conditions.
Improvement opportunities can be identified by anyone engaged with the Organisation, both internally and externally.
Many improvement ideas come not from management but from employees and suppliers operationally involved in service delivery. They are regularly exposed to operational inefficiencies which may not be visible higher up in the Organisation.
Your organisation should seek feedback. It should work to develop a culture where everyone in the Organisation is encouraged to look for and suggest operational improvements. All suggestions should be considered
A key element of Contract and Supplier Management is the proactive identification and management of risk. Guidance can be accessed on the Risk Management page.
More guidance on fraud can be found in the Scottish Government website on Fraud.
Weak interactions between an organisation’s finance, commercial, and contract management functions provide an opportunity for fraud and overbilling. This could be as a result of error and inefficiency, or by deliberate intent.
Without basic scrutiny of payments and performance an Organisation’s departments may rely on the supplier to interpret the contract correctly. This may result in error. Better scrutiny of payments and improved contract knowledge will identify overbilling and fraudulent activity. Appropriate action can then be taken
Contracts are awarded following a thorough evaluation process which addresses some standard elements.
Throughout the life of the contract, your Organisation’s Contract Managers/Contract Management Officers should perform periodic supplier ‘health checks’. This ensures the standards demonstrated during the initial evaluation are being maintained. Health checks could include:
The frequency of the checks should be in line with the type of contract. For example strategic and bottleneck contracts will be checked more frequently than collaborative and routine contracts.
Contract management activities must include sufficient checks to ensure suppliers are meeting their Data Protection Legislation obligations as the Processor. These checks may include audits undertaken by the controller or a third party auditor.
If obligations are not being met, organisations should take urgent remedial action with the supplier to address issues and risks.
More detailed information can be found in Additional Resources.
Good Contract and Supplier Management processes should encourage both supplier and organisational innovation. It should be recognised that suppliers often have innovative ideas to improve their own and their customer’s service. However suppliers can be blocked in their attempts to put these ideas forward.
You should want to be a customer of choice i.e. suppliers will invest and bring innovation to the contract. You should adopt these behaviours and allow supplier innovation and added value activity to flourish:
Quickfire Guide
You should promote supplier innovation and added-value activity to flourish:
Embrace your suppliers as an extension of your business. Learn from their ideas and build open and trusting relationships where innovation will thrive.
Establish a culture of trust and encourage ideas from suppliers, as they often know your business better than some of your own team.
Define and share your Organisation's definition of supplier innovation. This way suppliers can understand your internal process, where they fit in and your expectations of them.
Share as much information as you can with your top suppliers. The earlier suppliers can see your product / services roadmap, the sooner they can provide ideas to improve it.
Implement a consistent governance framework. If a supplier’s idea has potential, assign an internal owner to investigate and develop this ensuring there is accountability and development continuity.
Innovation does not have to be ‘ground breaking’. Even minor service or process adjustments can bring cost and/or efficiency gains.
Encourage collaboration within the teams, and let them know there will be some ideas will be more successful than others, but all ideas will be considered. Publicise and reward innovative contributors appropriately.
Publicise supplier innovation success stories. A brief email outlining real supplier initiated added-value and the mutual benefits will encourage others to do the same.
Consider innovation as a standard KPI and ensure innovation is on the agenda at performance reviews.
Innovation is a two way process. Your organisation should be equally active in exploring innovative ideas which will help your suppliers improve their performance and service delivery.
Demand Management can be defined as:
“the alignment of a business’ consumption with its business requirements”
It is applicable to all goods and services where internal demand and consumption can be influenced to reduce costs.
Demand Management is a key aspect of effectively aligning external resources to meet requirements. When demand management is considered, it is often seen as a simple matter of stopping people spending money. However there are ways to look at demand management without completely preventing spend. These can provide notable savings and have a less drastic impact on the business.
Demand often results from internal practice and process rather than from addressing a real need of the organisation. The approach is about addressing change ‘in’ an organisation. Therefore the starting point will be the culture, policy and behaviours of your organisation.
Your organisation can also participate by the sharing of best practice, benchmark behaviour, policy guidance and peer review.
Demand management can come at different points in the procurement process. from the initial purchase point e.g. making sure that software licences are purchased for the correct number of users at a single point in time or where costs are recurring as an ongoing activity such as in a category where spend is ongoing and regular, such as stationery or postal services.
Demand Management, including behaviour change, represents a significant and untapped opportunity.
In the short term |
changing expectations |
in the medium term |
changing participation |
in the long term |
reducing need |
There are 3 main principles of demand management:
1. Each business unit should have exactly what it needs in order to deliver its business objectives
2. Any resources consumed above this level represents a waste to the organisation
3. There may be many and very different ways of meeting a user need. Each way represents a different level of resource to achieve the same outcome
The three strategies listed below could be independently or jointly applied.
Is the requirement really needed? Can the consumption be stopped? e.g. cancel non-essential meetings, or stop the use of mobile phones for non-business calls. |
|
Replace |
Can we use lower cost or more effective alternatives? e.g. use video-conferencing for meetings or ensure non-confidential papers are not treated as confidential waste |
Reduce |
Can we use less of a product / service? e.g. don’t order a monitor with every PC purchase or, schedule meetings for the same day |
With Demand Management you should consider:
The three strategies listed below could be independently or jointly applied:
Eliminate | Is the requirement really needed? Can the consumption be stopped? e.g. stop the use of mobile phones, hold meeting via teleconference |
Replace | Can we use lower cost or more effiicient alternatives? e.g. non-confidential documents not treated as confidential waste |
Reduce | Can we use less of a product/service? e.g. schedule meetings for the same day, don'r order a monitor with every PC purchase |
There are a number of benefits to an effective Demand Management strategy. Many benefits are driven by:
When robustly implemented across all goods and services Demand Management drives public sector organisations’ efficiency and effectiveness. The organisation uses all the external resources it procures to meet operational requirements.
The Demand Management process challenges the norms, standards, customs and practice of an organisation. This is done to a degree not usually found in other processes.
Using Demand Management to prepare Strategic Sourcing, you can establish the organisation requirements to be sourced to a very specific level. This can avoid the development of a sourcing strategy for over-specified operational requirements.
Used routinely Demand Management can ensure the highest possible resource levels are directed at front line services. This is especially important in the public sector.
Consideration as to how the demand will be forecast and fluctuations managed should be initially undertaken at the ‘Shaping the Requirement’ Stage. This should subsequently be monitored and managed throughout the lifetime of the contract. Failure to do so could result in:
effective demand management forecasts also give the supply base the opportunity to manage their costs. This can be achieved by positioning resource and material in line with demand.
Demand forecasting should be based on considerations such as:
Where practical you should look to reduce future demand and costs by using strategies such as:
For any supplier to operate effectively, it must understand and manage its demand. It must use this knowledge to tailor its resources and processes proportionately. This will ensure they deliver their service in the most efficient and cost effective manner. By understanding historical demand, an organisation can work with its suppliers to realise mutual cost and efficiency gains.
The most effective way to forecast future demand is to consider a combination of:
Forecasting is not an exact science and will never be 100% accurate. However these elements should provide sufficient information to allow the Organisation to develop forecasts. These forecasts should be accurate enough to accommodate demand fluctuations during the lifetime of the contract(s) with minimal cost.
The Organisation should ensure the supplier stays in regular contact with all key stakeholders (including suppliers). This will ensure that all parties are aware of the supply/demand position, especially during periods of fluctuation.
Performance Review Meetings provide your Organisation and the supplier with an opportunity to:
The Performance Review Meeting standard agenda template can be completed by your Organisation and the supplier before the meeting. This will provide a structure to the meeting.
It is best practice to hold at least an annual review for suppliers identified (under the segmentation process) as requiring ‘medium level’ supplier management. At least two review meeting per year should be held for ‘high level’ suppliers.
The Review Meeting Template and a meeting agenda example are available below to assist you in doing this.
The Performance Review Agenda Example (agenda can be amended to suit your personal preferences):
Quickfire Guide
This agenda can be amended to suit your personal preferences:
Agenda Item |
Description |
Introduction and Opening Remarks |
Introduce attendees. Recognise special or new guests. Provide any opening remarks that are pertinent to this meeting such as current events, organisational changes, etc. |
Review of Action Items |
Each Performance Management Review meeting will produce some follow up action items for your supplier, your Organisation or both. These should be documented and followed up at the next Performance Management Review meeting. |
Supplier Performance
|
Performance against SLA/KPIs/Scorecards should be reviewed and discussed, and any performance concerns raised. This will be a quick review if all deliverables are being achieved. Any "below plan" performance will demand more discussion and most likely recovery action plans. These plans should be managed operationally and reviewed at the next Performance Review meeting. |
Customer Performance
|
The supplier can raise any customer performance issues. For example these may be impacting their ability to fulfill their contractual obligations. |
Key Improvement Areas/Opportunities |
All opportunities for improvement should be explored. Once identified, action plans should be agreed. Areas to be explored should include: current performance issues, cost, process, Sustainable Procurement, Corporate and Social Responsibility, innovation/value add. |
Supplier Presentation |
The supplier should provide a business overview, including example financial information, strategy, overarching objectives, etc. |
Meeting Summary and Review of Action Items |
Round up of meeting and confirm next meeting date. |
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